• Sri Lanka needs to prioritise investment security and ease of doing business.
• Politicised institutions hinder effective policy implementation.
• A balanced foreign policy is crucial for economic recovery.

Big investors are not looking for tax breaks but for investment security and ease of doing business which Sri Lanka did not have over the years, according to Hong-Kong based Senior Development Policy Advisor Kithmina Hewage. In an interview with The Daily Morning Business, Hewage expressed that even within the current government there have been policies shifting from one extreme to the other within six months.

“This is why we haven’t been able to attract the big investors, while those around us in the region have,” he said, adding that while policies evolving and shifting with changes in government are natural and healthy for democracy, Sri Lanka should, as a country, and no matter who is in charge, agree on at least some fundamentals, like being fiscally responsible and investing in an export-oriented economy.

Hewage also believes that Sri Lanka’s foreign policy should be closely integrated with the country’s economic policies, as he pointed out that it was the “economic crisis that finally forced us to maintain a balanced foreign policy, something that was absent since the late-2000s.”

Following are the excerpts from the interview:

Q: When it comes to public policies – Sri Lanka has a bad history and an economic crisis to look at – why do they fail in Sri Lanka? Is it something to do with the formulation or implementation?

Fundamentally, Sri Lanka’s poor record on policies is due to politicised and weak institutions. Politicians around the world make poor choices, but in countries with independent institutions, you have better safeguards against these poor choices and can prioritise the country’s well-being over a politician’s personal incentives. Independent institutions also allow you to hold people accountable and reward professionalism.

This then leads to better policy design and implementation. For instance, because of politicised institutions now, corrupt and ineffective officials and politicians know they can get away with it if they have influence.

Even though there are many excellent officials, their work is undermined by those beholden to politicians. If we depoliticise our institutions, whether it’s the judiciary, police, civil service, and others, it will lead to better public policy outcomes.

Q: How can proper public policies help Sri Lanka get back on its feet?

Good public policies are essential to get Sri Lanka back on its feet. However, to make them good, these policies need to be evidence-based and inclusive. The problem with a lot of policies in Sri Lanka is that they are ideologically driven and serve the interests of a few – often the political and business elite.

Take for example the disastrous economic policies that led to the crisis, like the high level of money printing. There is no evidence around the world that such policies are beneficial to a country and independent experts all warned against driving up inflation. But those in power went ahead because it benefitted them and their allies.

Ultimately now, the burden of the crisis has fallen on the shoulders of the common citizens – especially low-income families.

I also want to highlight that good public policy is also about seeing the big picture. Currently, a lot of public policy in Sri Lanka happens in isolation from one sector to another. But to be successful, we need to think about public policy as a big jigsaw puzzle with each sector helping to build a complete picture.

For example, when developing an education policy or transport policy, it needs to link to our economic policies, our health policies, and the other way around as well.

Q: Accountability is something that is not bred into the public sector, why were successive governments less focused on accountability and are the newly created laws sufficient to address this area?

As I mentioned earlier, the lack of accountability is due to the absence of institutional independence. No individual politician or political party is going to create accountability overnight just because they come into power. If we are serious about accountability, we need to reform our institutions and make them independent and strengthen their roles.

Three important things need to happen to achieve this.

First, recruitment to the public sector should be solely based on open, competitive recruitment processes and the ability for politicians to arbitrarily place people as permanent staff in the public sector should be removed.

Secondly, promotions in the public sector should be performance-based. We should be rewarding people who perform well, not just because someone has been in the service for a long time.

Thirdly, we need to adjust how we compensate our public sector. The public sector should be compensated at least somewhat comparable to the private sector salaries.

But all three of these things should happen together, and not just one or two, so we attract and reward the best performers and most skilled.

Q: Sri Lanka’s development policies have lacked consistency, which in turn impacted the economic development of the country and the citizens. What would be the danger of going on that same path after the upcoming presidential election?

This is a major concern for me. Sri Lanka hasn’t fully recovered from the economic crisis yet. Although our macroeconomic numbers have stabilised, a large portion of our population is still in poverty or on the margins of poverty and suffering.

We also need to still finalise our debt restructuring agreements. Given all of this, if our policymakers are irresponsible and go back to populist policies, we could see another crisis.

This is also an issue for the long term. Over the years, I’ve had the opportunity to work with and alongside some of the top businesses and business leaders in Asia, and the most significant reason that stops them from investing in Sri Lanka is policy inconsistency.

Many of these big investors are not looking for tax breaks. They are looking for investment security and ease of doing business. Sadly, we haven’t had that over the years.

Even within the same government, sometimes policies shift from one extreme to the other within six months. This is why we haven’t been able to attract the big investors, while those around us in the region have.

Q: How have other democratic countries in the region been able to keep their policies consistent, is it because the change of governments comes after some time unlike in Sri Lanka or have they implemented the safeguards to keep the policies alive?

Policies evolving and shifting with changes in government are natural and healthy for a democracy. But we should as a country, no matter who is in charge, agree on at least some fundamentals, like being fiscally responsible and investing in an export-oriented economy.

Across the region, one of the major reasons why economies like Malaysia, Thailand, Taiwan and countless others have succeeded is that even though governments change, there is policy consistency across some of these fundamental issues.

Another major reason is linked to the strength and independence of their institutions, which I discussed earlier. So even though the government changes, those in the bureaucracy remain, and as a result, they can implement policies that are agreed upon without being completely derailed. Similarly, investors know that when there is an independent judiciary, they can rely on unbiased decisions and their investments are secure, regardless of the government in charge.

Q: Do you think the economic crisis has led to a change of approach to the foreign policy of Sri Lanka and are there areas that need to improve?

I feel that the economic crisis has finally forced us to maintain a balanced foreign policy, something that has been absent since the late-2000s. For a long time, although Sri Lanka claimed to be non-aligned, in practice our foreign policy had leaned towards different global and regional powers.

The economic crisis, however, has required us to work with all parties, whether it’s India, China, Japan, or the West, without alienating either. In an article last year, I called this “enforced agnosticism.”

Pursuing a balance with all parties has been especially important during the debt restructuring negotiations. Moving forward, Sri Lanka should continue to maintain this balance. As a small, island economy, we must be strategic and maintain healthy political and economic relationships with all regional and global powers.

Leaning towards one or the other may bring short-term benefits but inevitably harms us in the long run.

There are two areas of foreign policy that I would like to see us develop further. One is a much closer integration of our foreign policy with our economic policies. Our foreign missions in particular can play a much bigger role in developing trade networks for Sri Lankan firms and attracting foreign investment to Sri Lanka. While this happens to some extent, based on my personal experience, there is a lot more done by other countries than what we do.

The second is related to our engagement with the diaspora community, regardless of their ethnicity. Over the years, we have under-utilised the value of Sri Lankans living abroad, and due to several missteps, there is a significant trust deficit that has developed as well.

Both these areas, of course, will require domestic political and policy reforms as well to facilitate these efforts.